The Role of High-Frequency Intra-daily Data, Daily Range and Implied Volatility in Multi-period Value-at-Risk Forecasting
Article first published online: 7 JUN 2013
Copyright © 2013 John Wiley & Sons, Ltd.
Journal of Forecasting
Volume 32, Issue 6, pages 561–576, September 2013
How to Cite
Louzis, D. P., Xanthopoulos-Sisinis, S. and Refenes, A. P. (2013), The Role of High-Frequency Intra-daily Data, Daily Range and Implied Volatility in Multi-period Value-at-Risk Forecasting. J. Forecast., 32: 561–576. doi: 10.1002/for.2249
- Issue published online: 26 JUL 2013
- Article first published online: 7 JUN 2013
- Manuscript Accepted: 25 JUL 2012
- Manuscript Revised: 11 MAY 2012
- Manuscript Received: 15 DEC 2011
- Realized GARCH;
- multiple forecasting horizons;
- alternative volatility measures
This paper assesses the informational content of alternative realized volatility estimators, daily range and implied volatility in multi-period out-of-sample Value-at-Risk (VaR) predictions. We use the recently proposed Realized GARCH model combined with the skewed Student's t distribution for the innovations process and a Monte Carlo simulation approach in order to produce the multi-period VaR estimates. Our empirical findings, based on the S&P 500 stock index, indicate that almost all realized and implied volatility measures can produce statistically and regulatory precise VaR forecasts across forecasting horizons, with the implied volatility being especially accurate in monthly VaR forecasts. The daily range produces inferior forecasting results in terms of regulatory accuracy and Basel II compliance. However, robust realized volatility measures, which are immune against microstructure noise bias or price jumps, generate superior VaR estimates in terms of capital efficiency, as they minimize the opportunity cost of capital and the Basel II regulatory capital. Copyright © 2013 John Wiley & Sons, Ltd.